Modi govt can bring real agriculture reforms only by working with states

There is a real risk that the Indian agricultural sector will be left in a state of greater regulatory ambiguity and economic uncertainty, and that farmers will suffer more.

Farmers stage a protest over agriculture related bill, in Mansa district, Punjab | Photo: ANI

Even as the Lok Sabha passed three new agricultural market and trade Bills this week, with the stated objective to promote freer trade and competition, the Ministry of Commerce and Industry invoked its powers under the Foreign Trade (Development and Regulation), 1992 Act to ban the export of all varieties of onions produced on Indian soil. Farmers in Maharashtra quickly rose up against the export ban, anticipating a sharp fall in wholesale prices, and thus in their incomes. The week also saw continuing protests in Punjab and Haryana, where farmers are up in arms against the Narendra Modi government over the farm sector Bills. In Delhi, Union minister Harsimrat Kaur Badal quit the government Thursday over its decision to go ahead with the three Bills without taking on board any changes.

At a time when there is growing recognition of the vital role of agriculture in the Indian economy and in future pathways for sustained economic growth, these actions and events diminish the credibility of the agricultural reforms process and threaten to once again leave Indian agriculture, like its onions, in the lurch.

The credibility of any serious agricultural market reforms process depends on how governments – at all levels – design and sustain complex institutional changes and negotiate politically volatile trade-offs. In a field that is by its very nature characterised by tremendous complexity, diversity and contestation, this requires a demonstration of clarity, genuine engagement and responsiveness, and serious consensus-building and coordination.

Reform by stealth – or in this case ‘bypass’ reform, as some are describing the present legislative strategy – will ultimately fail India’s farmers. At best, this will be another chapter of relatively ineffective piecemeal reform.

But as the suspicions grow and the trust-deficit widens, there is also a real risk that the Indian agricultural sector will be left in a state of greater regulatory ambiguity and economic uncertainty, and that farmers will suffer from the further weakening of existing agricultural institutions and systems.

Agricultural market reform is politics

To dismiss resistance to reform as politicisation is to distract from a fundamental reality. Tied up as it is with land and food security, crops and commodities, producers and consumers, creditors and debtors, intermediaries and speculators, labour and industry, inputs and outputs, subsidies and exemptions, infrastructure, regulation and taxation: agricultural market reform is political.

Indeed, historically, there are few areas of economic activity, where this is more apparent than in the marketing and trade of agricultural produce. Here, as historian E.P. Thompson so powerfully described it, “the friction of the market-place takes us into a central area of the nation’s life.” In India, this life and these frictions are deeply embedded in the changing dynamics of diverse agro-ecological regions and human settlements, of political and administrative states, and of local, national and global systems of capital and commerce.

The Modi government’s response to the diverse and growing expressions of confusion, anxiety and protest against the new agricultural market Bills has largely been to dismiss them as hypocritical, unfounded, or misguided. The Bills, the government says, have nothing to do with the policy on minimum support prices (MSP) and public procurement; farmers in Punjab and Haryana need not panic. Similarly, the Bills do not dismantle existing state APMC (Agricultural Market Produce Committee) laws or mandis; they only delimit their powers and open the system to competition and tax-free exchange outside market yards. The government has also pointed out that the bills introduce provisions for Farmer Producer Organisations (FPOs) and address dispute resolution, protecting the interests of farmers. Why, then, all this fear and opposition?

Farmers’ worries are genuine

Unfortunately, Indian agricultural laws and policies have long been laced with bitter ironies. This week’s onion export ban is only the latest demonstration that the State will always have a choice of multiple instruments to intervene in markets. On the ground, the rhetoric of doubling farmers’ incomes has remained largely unrealised in the absence of real choices and greater bargaining power in the actual, physical markets that millions of primary producers depend on. In such a context, and in the face of what is being heralded as a ‘historic’ and ‘revolutionary’ reform, it is understandable that many farmers feel deeply worried that their existing state-supported lifelines, no matter how tenuous, inadequate and riddled with problems, will be deeply compromised or withdrawn in the process.

This is especially the case in Punjab and Haryana, where, for decades, both the Centre and states have supported, defended and entrenched a vast and universal MSP-based procurement regime for wheat and paddy. At the same time, it is not as if these states—and most of all their farmers—are oblivious to the enormous economic, agro-ecological and political costs of the existing procurement system, and to the urgent need for greater crop diversification. There have been important efforts initiated towards this goal, there are a number of serious policy options to consider, and there are experiences of different procurement systems to learn from.

But, instead of building up the confidence to develop a comprehensive framework for agricultural reform for these states, with a credible time horizon and coordinated support for farmers, the position on agricultural reforms has become further vitiated and volatile. Even if the three farm sector Bills do not directly legislate on MSP and procurement policy, it is simply not tenable to spearhead major national reforms in agricultural markets in India without making room for detailed deliberations on the future of where and how price support and procurement policies fit in.

This is even more important when it comes to the status and implications for the current APMC mandi system and other regulated and unregulated market sites (villages, mandis, haats, bazaars) across different states in the country.

Mandis play a vital role

In states where APMC mandis exist and are functional, farmers, and even mandi traders and commission agents (whether in Maharashtra, Madhya Pradesh or Karnataka), will be the first to provide a long list of complaints about the problems that primary producers and new market entrants face. But, at the same time, these regulated multi-buyer, multi-commodity, multi-season local physical marketplaces play a vital role for price discovery and for negotiations on a whole range of critical non-price elements of market exchange (including weight and payment). This is particularly the case in an agricultural production and marketing system composed predominantly of small-scale actors operating in a largely informal economy. Indeed, well-regulated primary wholesale markets matter most not only where APMCs mandis exist and operate, but where they are absent.

Therefore, instead of carving up and further fragmenting the regulatory landscape into ‘trade areas’ (under the new central law) and ‘market areas’ (under state APMC laws), India needs a comprehensive yet flexible regulatory architecture that enables multiple sites and channels for farmers, while ensuring adequate prioritisation for credible, locally accessible platforms for price discovery, exchange, and movement. This, in turn, will need serious regulatory capacity and much greater support for a wide range of national, regional and local agricultural institutions. The vision for reform cannot now be to leave the APMC markets to state regulation, while the ‘rest’ of the space is minimally regulated under a distant central act and district administrators.

The farm ordinances, now Bills, and likely soon-to-be Acts, may have been moved after years of frustration with uneven and partial state-level reforms. But the real credibility of an agricultural market reforms process will not come from the boldness of bypassing the states. It will depend on how the Modi government creates the confidence and the space—currently completely missing—to support states in their own long-term reform processes and provide a robust institutional framework for Centre-state and inter-state coordination wherever needed. This will equally require the demonstration of greater leadership and initiative by the states. Without both, the only ones to be bypassed, yet again, will be India’s farmers.

Mekhala Krishnamurthy is Senior Fellow and Director of the State Capacity Initiative at the Centre for Policy Research and Associate Professor at Ashoka University. Views are personal.